The FTSE 100 Index was launched in January 1984 at the level of 1,000 points. But by August 1997, the index breached 5,000. And that means over a period of just 13 years and seven months it increased to five times the starting value.
Some of those huge gains were driven by telecommunications, media, and technology companies. And many of those businesses reached elevated valuations because of speculation linked to the early years of the internet.
However, the ‘dotcom boom’ ended badly. And on the first day of trading in 2000, the bull market began to falter. The plunge in share prices accelerated. And by the spring of 2003, the Footsie was back near 4,000.
But moving from 1,000 to 4,000 was still a good outcome for the index over the period. And I think there are reasons to believe that similarly large moves could occur from today’s level.
The big reset
For example, we appear to be in the early stages of a bull market for shares right now. And it could prove to be a multi-year event. So, I’m optimistic because the past three years have been traumatic for both businesses and stocks. And, in many cases, company valuations have fallen because of the bearish markets.
As I see it, the pandemic, the war in Ukraine, and the price shocks caused by elevated commodity prices have all helped to cause a general resetting. People have re-evaluated their lives and lifestyles. Companies have examined their core businesses in great detail. Investors have appraised stock valuations. And nations have examined their supply chains and security arrangements.
So, it’s from this new, potentially firmer base, that the bull-phase for stocks has begun. Yet, when I look at the companies within the FTSE 100 right now, it’s difficult to imagine some of them growing much. But they don’t have to.
The FTSE 100’s dynamic setup
The composition of the index today is vastly different from what it was in 1984. Companies have arrived and left the index often over the years. Sometimes we lose names because of merger and acquisition activity. And underperforming businesses can slip out of the index and drop into the FTSE 250 or other indexes.
But the process works in both directions with faster-growing businesses joining the FTSE 100 to replace laggard companies. And that makes the Footsie a dynamic setup that is capable of regular refreshment and renewal.
Indeed, it’s the ability of the index to regenerate and accommodate upcoming fast-growth businesses that keeps me optimistic. But it is not certain that the Footsie will hit a level near 39,000 by 2036. There’s even a possibility it could be lower than it is today.
However, I’m happy to invest regularly into a FTSE 100 index tracker fund to position myself for the possibility of a big rise over time. I reckon the index makes a potentially decent long-term investment for me anyway because of its dividend yield. Right now, it’s near 3.5%. And my accumulation tracker rolls all the dividend income back into my investment with the aim of compounding gains.
